Net IRR vs Gross IRR
Gross IRR is performance before fees; net IRR is what LPs receive after all fees, expenses, and carry.
Definition
Definition Gross IRR reflects the investment performance of the portfolio before deducting fund-level costs. Net IRR incorporates management fees, expenses, and carried interest, and is the number that matters to LP outcomes. Differences between gross and net can be substantial, especially in high-fee or long-duration strategies. Allocator Context Allocators prioritize net outcomes, but gross matters to evaluate the underlying engine. Many institutions use both: gross to assess investment skill, net to evaluate competitiveness and alignment. They also scrutinize whether reported net metrics are calculated consistently across funds and whether subscription lines inflate IRR optics. Decision Authority Committees typically approve based on net return expectations and risk fit, but may challenge fee structure if the gross-to-net gap appears disproportionate. In competitive fundraising, net performance relative to peers can determine allocation size. Why It Matters for Fundraising Managers should be explicit about gross vs net and provide consistent methodology. Misalignment between marketing numbers and data room calculations is a fast way to lose trust. Key Takeaways LPs care about net outcomes; allocators also evaluate gross engine quality Fees and carry drive the gap Consistent methodology is essential for credibility Subscription lines can distort IRR optics if not disclosed